Up to one crore taxpayers could benefit from the government's decision to extend the scope of total rebate on income tax under the new tax regime to an annual income of Rs 7 lakh from Rs 5 lakh earlier, sources in the government told The Indian Express. The government estimates that the number of income tax return filers in the Rs 5-7 lakh income bracket is around one crore. Although many among this Rs 5-7 lakh income group might not be paying any tax after availing deductions under the old tax system, they still stand to benefit by migrating to the new regime as they will not be forced to invest in tax-saving instruments, leaving more disposable income in their hands. The government expects most in this income bracket to shift to the revamped new tax regime. The new tax regime, introduced in 2020, failed to attract a significant number of taxpayers as a minimal compliance burden was by itself not a big enough incentive. Though the tax rates in the earlier version of the new regime were lower than what the old system offered, the benefits of deductions in the old system outweighed the lure of lower rates. Government officials are hopeful that the revamped version of the new tax regime will have the opposite fate. One big differentiator, sources pointed out, is that taxpayers in the new regime will be driven by their choice, not tax deductions while making investments. This, in turn, could also curb the practice of misselling prevalent in the financial services space. Announcing the Budget for 2023-24 on Wednesday, Finance Minister Nirmala Sitharaman made a few tweaks in the new tax regime with the expanded scope of full rebate on tax, rejigged tax slabs, and the benefit of the standard deduction of Rs 50,000. Sources said that revenue forgone by the government due to the spruced-up new tax regime could be around Rs 35,000 crore in 2023-24, accounting for around 95 per cent of the estimated gross revenue forgone of Rs 37,000 due to direct tax changes. It is a price the government is willing to pay to make the new tax regime lucrative enough for people. Even as the government wants to attract all individual taxpayers to the new income tax regime, it has decided to continue offering flexibility to taxpayers to choose between the two tax models. Officials said that individual taxpayers, except those with business income, will be allowed to switch from the old regime to the new and vice versa each year. This would enable the individual to do the tax math for each financial year and choose the more beneficial regime aligned with their spending and investment goals.
